HMRC tax investigations - How to prepare your business for them

HMRC tax investigations

October 14, 2020

HMRC tax investigations is a stressful process which is better prevented than cured later as it may lead to a higher tax bill. In order to avoid getting an HMRC tax investigations in the first place we need to understand the reason that will draw attention of HMRC to our business.

Are you regularly making mistakes? Is your return showing no profit or less profit than expected for a long time? Is it dramatically different than other similar businesses? Are you a company director and your self-assessment tax return shows you earn less than your employee?

If any of the above answer is yes you are likely to have an investigation. not having an accountant can also lead to one as doing yourself you might make errors that your accountant may prevent.

Let us understand what is an HMRC tax investigation.

In order to check you are paying correct tax HMRC has a duty to randomly check or investigate in case of a doubt. If you are going to be investigated you will receive a letter or call briefing you on the same. They may ask to see all your records like the SA tax return, your accounts, your Company Tax Return, your PAYE records and returns in case you are an employer and your VAT returns and records if your business is VAT-registered. You will be allowed to keep your accountant with you during the investigation. They may deal with your accountant on your behalf. A thorough audit and probing questions may make anyone uncomfortable even if they never tried to evade tax. You may not be certain how long it will last.

There are three types of tax investigations

HMRC can carry out:

Full enquiry:

This happens in case of higher chances of errors and require full audit of all records.

Aspect enquiry:

Usually in case of genuine errors HMRC investigates a particular aspect of your accounts.

Random check:

As mentioned before as part of their duty they may pick up randomly any business without having given a reason.

What taxes are scrutinised?

HMRC may investigate the following:

  • - Income Tax
  • - VAT
  • - Corporation Tax
  • - Capital Gains Tax
  • - Construction Industry Scheme (CIS)
  • - IR35
  • - Any other tax

How to avoid getting in the list to be inspected?

You may be a part of random check but otherwise you may try being punctual, accurate and not noticeably inconsistent to avoid being on the list.

What you must do.

Below are some tips that you may consider to help yourself.


Keeping records is very essential. It will give you a good picture to analyse your business and also help you produce what HMRC inspector asks for. Investing in a good accounting software may help you manage your records which is essential.

Error free and timely tax returns:

Late submissions may attract investigations and so does major errors on your Returns. So you must submit your Returns on time and see to it that they are accurate.

Professional services:

Hiring an accountant may help you submit your returns on time as well as avoid noticeable errors. They may draw your attention to unusual amounts.

Save all invoices:

Any invoice may matter to validate your input claims or to check even zero-rated figures if you use schemes like Direct Cal. If you are not sure which ones are necessary better preserve all.


You must self check for errors and that you can do by reconciling the figures with your bank account. If your bank balance doesn’t match with the balance shown in your accounts you know there is an error and can rectify the same.

For how long you need to keep the records?

HMRC may check records of the last four years. However, they may go back to six years if you are found careless. In case of deliberate errors, they may go back even farther and investigate last twenty years.

If you have received a notice or expecting an HMRC inquire contact us today